Lessons from JC Penney

By John S. Strong and Lawrence J. Ring

We decided to write the companion case on JCP because one of the industry’s oldest and most enduring brands, JC Penney, had acquired an acclaimed new and visionary leader fresh from great success with Apple stores. With great fanfare he announced his plans to remake the chain. As we watched the saga that has been JCP play out during the last couple of years, it occurred to us that several lessons were emerging from the story. Our take on it follows:

Strategy

If you try to fire your customers, they’ll quit on you first. As Howard Gold pointed out, “Customers know when you don’t want their business anymore.”1

Executives need to test and trial new initiatives, especially when running a big organization. We understand that it is hard to change the direction of a big company, and that there are many ways new ideas can be killed. But, better to build small wins and support in implementing strategic change. This might not be possible if the business is collapsing, but in Penney’s case it was still large and profitable when Ron Johnson took over.

Segmentation is the tough job; positioning is easy. JC Penney’s core customer had long been families on a budget looking for good quality at reasonable prices, and company positioning was appropriate. The new strategy attempted to change JCP positioning without being clear which customer segment they were after, eventually suggesting they were after a younger, more affluent, and more fashion-oriented segment. But, many of the stores looked like they always did.

Don’t straddle segments. Pick a segment and serve it.

Changing the look and feel of stores was a prerequisite to the new strategy. But, Penney’s didn’t roll out the renovated stores region by region, so that there was a mishmash of old and new stores. New logos and signage in stores can’t overcome challenges in the store environment. So, the old customers said, “It’s the same place with higher prices,” and the new customers said, “It’s the same store with a few new brands.” The result was that JCP got neither.

It is really hard to move from a Hi/Lo promotional strategy to an EDLP strategy, especially when much of the product offer remains the same. Prior to the new strategy, JCP had more than 50 percent of its sales coming from private or exclusive brands, so it already had a hybrid merchandising strategy. Old customers have been trained to wait until stuff goes on sale—because it always does. Customers can afford to be patient on this, especially since there are many alternatives in the market.

Clarity of offering is absolutely critical to achieving meaningful differentiation (especially in mature, crowded markets.) Clarity is difficult to achieve and easily lost. What does JCP stand for today?

Leadership

A little humility would have gone a long way. Imperial CEOs don’t fit with value retailing. Personal corporate jets and suites at the high-priced luxury hotels don’t help either.

If you want the job, take the job. You can’t commute to a CEO job. When your new, hand-picked senior team also doesn’t move to company headquarters, it sends a clear message to the rest of the company’s employees. Retail is a people-intensive business—the team matters. Just like you can’t fire your customers, you can’t fire all your employees. But, they can quit on you, even if they continue to be on the payroll. It takes an entire organization to agree to support change.

“Fit” matters. Penney’s has a long history and a legacy that contains many things of which to be proud. Remember, there is value in what you are and what you have been. As Jim Signorelli2 says, customers and employees know who you really are, deep down inside. And, the longer you’ve been around, the deeper your “down inside.” That doesn’t mean that the old strategy at Penney’s was the right one or that there weren’t problems. But, Johnson failed to recognize that the company’s history could be an asset. In fact, he appears to have decided very quickly that the company’s history was the problem.

New retail executives with new ideas need to test and trial stuff, especially when running a big organization. Sometimes “go and ask” is better than “I think we should do …” And, it is always better than “I know we should do …”

Execution

Basics still matter in retailing. Good shopkeeping hasn’t changed—many of Penney’s stores were messy and customer service was a mixed bag at best—and this got worse after the new strategy was rolled out.

Know thyself—three JCP logos in three years raises questions about whether you believe in what you are doing.

Just because it worked at Apple, doesn’t mean it will work elsewhere, especially JCP.

“Fair and square pricing.” Nobody knows the real costs, so why is this position credible?

Brand new or new brand? Johnson thought about Penney’s as a startup, with new ideas about product, merchandising, pricing, and store design. If you want a new brand, you need to start a new brand. The failed effort to reinvent Nordstrom a dozen years ago had lessons for JCP—one of them being that the new formats often require new brands or sub-brands (Nordstrom Rack).

Overall

The market space for middle market department stores (JC Penney, Sears) is fiercely competitive and is shrinking, being squeezed by traditional department stores (Macy’s) from above and by discount department stores (Target) from below. The segment also is under flank attack from off-pricers (TJ Maxx) and highly promotional players (Kohl’s). In the medium term run, the segment likely needs to consolidate.

Can you imagine how much worse the JCP story would be if Sears had been more competitive?

Strategy and execution go hand in hand. Even great strategies can be undone by poor execution. Great execution of the wrong strategy also is a recipe for failure. But, a poor strategy that is poorly executed will never work.